The Importance of Creating a Diversification Strategy for your Online Business

Diversifying my online businesses is a constant struggle for me.  Perhaps it is for you too.  Or maybe you’ve been so busy starting or growing your business that you haven’t even started thinking about a diversification strategy.  The two areas to examine first are traffic diversity and income diversity.  After you get a handle on those, then you can start looking at more advanced diversification topics.

For me, my biggest concern about my business is a lack of income diversity.  Over 60% of my monthly income comes from Google Adsense.  If my advertising efficiency (as measured by eCPM) were to take a nosedive, my livelihood would be seriously impacted.  Worse yet, if I became banned by Google Adsense, I would be scrambling for sure.  After I quit my job to focus on my online business, the importance of diversity became elevated.  In the past year I have added revenue streams from affiliates, Pay Per Lead (PPL), and other channels to reduce my overall dependence on advertising.  I have also added two additional ad networks to reduce my reliance on Google Adsense. I still don’t think it’s enough.

What are you most worried about with your site?  How diversified are you?  Let me know in the comments below.

Importance of Diversification

In financial planning, diversification is a method to reduce your risk by allocating your investments among several financial products, industries and other aspects (such as region and capitalization).  The main goal of financial diversification is to maximize your rate of return by placing your investments in multiple areas that would behave differently to the same event.

Diversifying your online business has the same goal as financial diversification – reduce your risk of losses from various market events.  In the financial world, the events that could trigger losses can be specific to a company, industry, market, economy or an entire country/region.  In the online world, “catastrophic” events can come from many different areas as detailed below.

When Should You Diversify

Many online entrepreneurs don’t know when they should start worrying about diversifying their business.  In reality, there is no one right answer – the answer depends on your tolerance of risk, the importance of the income stream to your livelihood, and the stage your business is in.

To help you decide how much effort you should be putting into diversification, answer the following questions:

• Would your lifestyle be dramatically altered if your current online income was cut in half?
• Does more than 60% of the website traffic come from one source?
• Does more than half of your current income come from a single revenue stream?
• Is all of your business related to a single niche?
• Would it be relatively easy for a new competitor to come into your marketspace and significantly harm your business?
• Does your business rely heavily on a single company or a single product?

Traffic Diversification

The first place to look for diversification risks and opportunities is your traffic sources.  The best way to evaluate your current situation is to view your website traffic in Google Analytics.  If you don’t have Google Analytics implemented for your website you need to do this as soon as possible – you will not be able to grow your business efficiently if you don’t know what type of visitors your site attracts (audience), where they come from (acquisition), and how they interact with your site (behavior).  To understand your website’s current traffic, go to your Google Analytics account and choose Acquisition>Channels to see your website’s traffic broken down into Google’s default channel groups:

• Organic Search – visitors who came to your site from clicking on a link from a search engine’s result page.
• Paid Search – traffic from pay per click (PPC) ads on search engines like Google, Bing and Yahoo.
• Direct – visitors who went directly to your site from the browser’s address bar.
• Referral – visitors who came to your site from links on other websites.
• Social – visitors who came to your site from various social networks, including Facebook, Twitter, Pinterest etc.  Also includes sites such as YouTube, WordPress, Tumblr, Scribd, SlideShare etc.
• Email – traffic from email campaigns.
• Display – traffic from ads on display networks.
• Other Advertising – visitors who clicked on your ads from other websites.

If you see that a significant portion of your traffic (greater than 60%) is from a single channel, then you should start investigating approaches to diversifying your traffic.

Traffic Diversification Approaches

Before your start planning your approach to diversifying your traffic, make sure you understand your target audience.  The better you understand who your ideal visitor is, the more targeted you can be in your traffic diversification initiatives.  To truly understand your ideal visitor, take some time to write down the following characteristics of the type of person that you want your blog/website to attract:

• Demographics – age range, sex, culture, religion, etc. – anything relevant to your topic.
• Experience Level – Beginner, Professional, Hobbyist etc.
• Needs/Problems – What is the reader’s problem that you are trying to solve?
• Aspirations – Does your ideal visitor come to your site because they are chasing a particular dream?
• Financial Situation – Are your target readers well-off, struggling or in-between?

Armed with this information, you can make smarter decisions on:  where to look for these types of visitors, what websites they may visit, and what messages may resonate with them.

Search Engine Marketing/SEO – contrary to recent discussions, SEO is not dead.  There are plenty of “white hat” SEO tactics that you can employ to improve your search engine rankings and increase your organic search traffic.  The most important thing you can do to increase your search engine traffic is to develop unique, authoritative content.  If your content is extremely useful to your audience and their needs it will get noticed, linked to, and eventually rewarded by the search engines.

PPC Marketing/Search Engine Advertising – if your current website makes a strong profit on a per user basis, then PPC marketing may be a great traffic channel to expand into.  One of the great advantages of search engine advertising is that you are more in control of your destiny than organic search.  You can control your budget, how much you spend per click and many other factors.  If your website can generate more per visit than it costs to get the visitor to your site, you can dramatically increase your traffic immediately.

Social Media – for many niches/websites, social media can be more of a long term strategy.  Many websites will not see immediate and direct increases in their traffic from increasing their social media presence.  The longer term effects of an increased social media presence, however, can be strong – you will have stronger engagement with your audience, you will become more recognized as an authority in your niche, and you will (ultimately) drive more traffic to your site.

Forum/Blog Marketing – you should identify the key blogs, websites and forums where your ideal visitors currently visit.  Understanding where your ideal visitors currently hangout will yield two important benefits:

1. you will gain a better appreciation of why these sites attract your target readers – what value they add that makes them attractive.
2. you will uncover opportunities to get your message in front of their visitors.  If the site has a forum or commenting you can establish your authority by leaving useful advice to the readers.  Remember to leave out spammy sales pitches and links to your site.

YouTube – if your topic lends itself to video promotion then you need to set up a custom YouTube channel immediately.  YouTube is a top destination on the web and purports to be the second largest search engine in the market.  If you can create useful videos that help solve your ideal visitors’ problems you will further establish your authority in the marketplace AND create a new source of traffic to your website.

Social Bookmark Sites – Social Bookmarking is a loosely defined term for various websites that let users submit links to websites.  The social aspect comes from the sites promotion of discussions or votes on the submitted topic.  Highly trafficked social bookmark sites include: reddit, digg, stumbleupon and many others.  To grow your traffic from these sources you can encourage your visitors to share your content, you can submit your own content, and/or you can develop a “presence” on these sites by submitting useful content/links and providing thoughtful comments.

Email Marketing – gaining email subscribers by creating a newsletter for your readers is a very powerful way to keep your visitors engaged with you and your content.  If you manage your newsletter properly (by providing useful content not found on your website, and not overly promoting your site) you will ultimately drive more traffic to your website as subscribers will want to learn more about what you have to say.

Engaging your current visitors – in the hunt for more and more traffic, many website owners often overlook one of their most powerful assets – their existing users/visitors.  As most experienced marketers come to realize, the cost of acquiring a new customer can be dramatically more than the losses associated with losing a customer (through poor retention).  In the case of an online business, there are many approaches you can take to leverage your existing customer base:  insure you engage them through commenting/forums, identify other relevant content they may be interested in when they visit your site, and build a relationship with them off your site (via social media and email marketing).

For more information on traffic diversification, see my article on promoting your blog to increase your traffic.

Income Diversification

Diversifying your sources of income is the second area that you need to develop a plan for.  If the majority of your revenue (more than 60%) comes from a single revenue stream then you need to start developing alternative income streams.

Many website owners (both new and established) make the mistake of becoming complacent about their revenue once they have a good stream of income established.  Perhaps you are making a killing with Adsense, crushing it with Amazon affiliates, or moving your eBooks like there is no tomorrow.  The problem is…your world can come crashing down if Google bans your account (they can and will for many reasons), Amazon changes/drops their program (like when they banned California accounts), or a new competitor starts giving away the same content as your eBook…for free.

The purpose of income diversification is to reduce your risk from events over which you have little control.

To properly diversify your income you need to establish multiple income streams from different providers.  To get your planning started, consider these alternative income streams:

Advertising networks – If you have your own website, adding advertising may be the easiest new revenue stream to add.  Google Adsense is by far the largest advertising network.  Adding Adsense is extremely easy: get approved, tell Google what size ads you want, and place their snippet of code on your website.  If you are already using Adsense and want to diversify, consider adding Media.net – the competitor to Adsense from Yahoo/Bing.  It’s not as large as Adsense but I found it does pretty well for some of my niches.

Affiliate Programs – This is another option that is pretty easy to get started with.  Virtually any niche that you are working with will have an affiliate opportunity.  For example, any topic that you are creating content for will have books that are for sale on Amazon – which you can link to as an Amazon affiliate.  Although I do utilize some of the larger affiliate networks (like ClickBank, Linkshare and Commission Junction) I have found the most success by finding “independent” affiliates that manage their own programs.  Not sure where to look?  Just search “your niche topic” +affiliate in Google to start your search.  One word of warning, though, affiliates are easy to implement but hard to do well.  You can’t just put a link on your website and expect to do well.

Lead Generation – This is an excellent and lucrative option for the right niche.  Many companies will pay you to send them qualified leads, a practice often referred to as PPL (Pay Per Lead).  Education, insurance, mortgage, credit cards and other niches have well established marketplaces for these PPL opportunities.

Events/Training – Although not a passive income opportunity, providing training or holding special events can be a way to diversify your offerings and provide value to your audience.  Web users are willing to pay for courses, training, and premium tutorials – provided that the information is valuable and not easily found for free.

Membership/Subscriptions – The appeal of having a membership or subscription site is based on the lure of a recurring revenue stream.  If your niche has constantly changing information or you provide a service that users need to use on an ongoing basis, this might be worth exploring.

Your Own Products – Many online entrepreneurs have successfully created their own products as a way to increase their profits, improve their income diversity, and better control their own destiny.  Examples include information products (like eBooks), plugins/themes (for WordPress and other Content Management Systems), apps for iOS/Android devices, or web-based applications.  The potential for increased profits is what drives most entrepreneurs to develop their own product…but with the added profits comes the added complexities of managing customers, vendors and payment providers.

For more information on diversifying your income, please see my article on how to make money from blogging.

Other Diversification Risks/Opportunities

Besides diversifying your traffic and income streams, there are a few other areas that you should explore:

Niche/Topic Diversification – after you have a niche established and diversified (traffic and income), it may be time to consider expanding into other areas. Niches are sometimes out of your control – they can become out of date (i.e., no one is interested in them anymore) or they can become hyper-competitive (lots of big players enter the market).  If you foresee either happening to you it may be time to explore going into another area.  A good place to start is topics that are related by have their own dynamics.  In my case, I expanded from some education niches to the career niche…a natural expansion opportunity that also wasn’t that risky.

Single Company/Product Risk – sometimes your diversification risk is more granular – perhaps you are relying too much on a single company or product for your business.  Two classic examples are relying on Google Adsense for all the majority of your advertising revenue or relying on a single affiliate’s product.  If you find yourself losing sleep over your relationship with one company or product, then it’s clearly the time to look to branch out.

Offline Diversification – You’ve already diversified your traffic, income streams AND niches…and you’re still concerned?  Perhaps it’s time to look offline.  Plenty of successful entrepreneurs take their profits and invest them in stocks/mutual funds, real estate, collectibles or hundreds of other offline investments.

Hopefully you’ve gained a better appreciation for the importance of developing a diversification strategy for your online business.  Let me know in the comments how you plan on better diversifying your business.